Alexander Hendrie

Repealing Obamacare is A Giant Middle Class Tax Cut

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Posted by Alexander Hendrie on Monday, December 12th, 2016, 11:47 AM PERMALINK

Congressional Republicans have vowed that one of their first acts next year will be to send legislation repealing Obamacare to the desk of President-elect Donald Trump.

Doing so will not only repeal a failed law that has resulted in skyrocketing premiums, cancelled healthcare plans, and billions in new, wasteful spending, it will also provide a giant tax cut to middle class Americans.

Obamacare imposed roughly one trillion in higher taxes over ten years that directly or indirectly hit middle class families and businesses.

Repealing these taxes will provide much needed relief to the paychecks of families across the country.

Repealing Obamacare will also undo Barack Obama’s broken promise not to sign “any form of tax increase” on any American making less than $250,000.

Individual Mandate Non-Compliance Tax ($43.3 billion tax hike between 2016-2025) 

Anyone not buying “qualifying” health insurance – as defined by President Obama’s Department of Health and Human Services -- must pay an income surtax to the IRS. In 2014, close to 7.5 million households paid this tax. Most make less than $250,000. The Obama administration uses the Orwellian phrase “shared responsibility payment” to describe this tax.   

Starting this year, the tax was a minimum of $695 for individuals, while families of four had to pay a minimum of $2,085.

 

Households w/ 1 Adult

 

Households w/ 2 Adults

Households w/ 2 Adults & 2 children

 

2.5% AGI/$695

 

2.5% AGI/$1390

2.5% AGI/$2085

A recent analysis by the Congressional Budget Office (CBO) found that repealing this tax would decrease spending by $311 billion over ten years.

Health Insurance Tax ($130 billion tax hike between 2016-2025)

In addition to mandating the purchase of health insurance through the individual mandate tax, Obamacare directly increases the cost of insurance through the health insurance tax. The tax is projected to cost taxpayers – including those in the middle class – $130 billion over the next decade. 

The total revenue this tax collects is set annually by Treasury and is then divided amongst insurers relative to the premiums collected from certain plans each year. While it is directly levied on the industry, the costs of the Obamacare health insurance tax are inevitably passed on to small businesses that provide healthcare to their employees, middle class families through higher premiums, seniors who purchase Medicare advantage coverage, and the poor who rely on Medicaid managed care.

According to the American Action Forum, the Obamacare health insurance tax will increase premiums by up to $5,000 over a decade and will directly impact 1.7 million small businesses, 11 million households that purchase through the individual insurance market and 23 million households covered through their jobs. The tax is also economically destructive – the National Federation for Independent Businesses estimates the tax could cost up to 286,000 in new jobs and cost small businesses $33 billion in lost sales by 2023.

Medicine Cabinet Tax on HSAs and FSAs ($6.7 billion tax hike between 2016-2025)

Since 2011 millions of Americans are no longer able to purchase over-the-counter medicines using pre-tax Flexible Spending Accounts or Health Savings Accounts dollars. Examples include cold, cough, and flu medicine, menstrual cramp relief medication, allergy medicines, and dozens of other common medicine cabinet health items. This tax costs FSA and HSA users $6.7 billion over ten years.

Flexible Spending Account Tax ($32 billion tax hike between 2016-2025)

The 30 - 35 million Americans who use a pre-tax Flexible Spending Account (FSA) at work to pay for their family’s basic medical needs face an Obamacare-imposed cap of $2,500. This tax will hit Americans $32 billion over the next ten years.

Flexible Spending Account Tax ($32 billion tax hike between 2016-2025)

The 30 - 35 million Americans who use a pre-tax Flexible Spending Account (FSA) at work to pay for their family’s basic medical needs face an Obamacare-imposed cap of $2,500. This tax will hit Americans $32 billion over the next ten years.

Before Obamacare, the accounts were unlimited under federal law, though employers were allowed to set a cap. Now, parents looking to sock away extra money to pay for braces find themselves quickly hitting this new cap, meaning they have to pony up some or all of the cost with after-tax dollars. Needless to say, this tax especially impacts middle class families.

There is one group of FSA owners for whom this new cap is particularly cruel and onerous: parents of special needs children.  Families with special needs children often use FSAs to pay for special needs education. Tuition rates at special needs schools can run thousands of dollars per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. This Obamacare tax increase limits the options available to these families.

Chronic Care Tax ($35.7 billion tax hike between 2016-2025)

This income tax increase directly targets middle class Americans with high medical bills. The tax hits 10 million households every year. Before Obamacare, Americans facing high medical expenses were allowed an income tax deduction to the extent that those expenses exceeded 7.5 percent of adjusted gross income (AGI). Obamacare now imposes a threshold of 10 percent of AGI. Therefore, Obamacare not only makes it more difficult to claim this deduction, it widens the net of taxable income. This income tax increase will cost Americans $40 billion over the next ten years.

According to the IRS, approximately 10 million families took advantage of this tax deduction each year before Obamacare. Almost all were middle class: The average taxpayer claiming this deduction earned just over $53,000 annually in 2010. ATR estimates that the average income tax increase for the average family claiming this tax benefit is about $200 - $400 per year.

“Cadillac Tax” -- Excise Tax on Comprehensive Health Insurance Plans ($87.3 million tax hike between 2016-2025)

In 2020, a new 40 percent excise tax on employer provided health insurance plans is scheduled to kick in, on plans exceeding $10,200 for individuals and $27,500 for families. According to research by the Kaiser Family Foundation, the Cadillac tax will hit 26 percent of employer provided plans and 42 percent of employer provided plans by 2028. Over time, this will decrease care and increase costs for millions of American families across the country. 

HSA Withdrawal Tax Hike ($100 million tax hike between 2016-2025)

This provision increases the tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Ten Percent Excise Tax on Indoor Tanning ($800 million tax hike between 2016-2025) 

The Obamacare 10 percent tanning tax has wiped out an estimated 10,000 tanning salons, many owned by women. This $800 million Obamacare tax increase was the first to go into effect (July 2010). This petty, burdensome, nanny-state tax affects both the business owner and the end user. Industry estimates show that 30 million Americans visit an indoor tanning facility in a given year, and over 50 percent of salon owners are women. There is no exception granted for those making less than $250,000 meaning it is yet another tax that violates Obama’s “firm pledge” not to raise “any form” of tax on Americans making less than this amount.

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Price Budget Reforms Are A Solution To Washington Dysfunction, Not an End to Medicare and Social Security

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Posted by Alexander Hendrie on Monday, December 12th, 2016, 9:00 AM PERMALINK

House Budget Chairman Tom Price (R-Ga.) recently unveiled a detailed proposal designed to fix the broken federal budget process. This discussion draft outlines a number of reforms that aim to reassert Congressional authority over the federal budget, establish enforceable benchmarks to rein in the deficit, and implement process reforms that reverse the bias toward unaccountable spending.

Bizarrely, the proposal has been criticized by some on the Left based on the idea that the Price plan will directly, and immediately lead to trillions of dollars of cuts to Medicare, Medicaid, and Social Security.

This is wrong. Nowhere does the Price Budget reform plan propose – or even mention – trillion in cuts to these programs.

Instead, the proposal is a much needed attempt to fix the problems of the 1974 Budget Act.

Rather than pushing these deceptive, unfounded criticisms, opponents of the Price plan should focus their efforts toward proposing their own reforms.  Ignoring the need to reform the 1974 Budget Act is an explicit endorsement of the political dysfunction, gridlock, and irresponsible spending that has become increasingly prevalent in recent decades.

The current budget system is unquestionably rigged toward unaccountable, reckless spending. It is far too easy for members of either party to play politics and derail the process of “regular order.” When this occurs, complex policy making inevitably devolves to a series of last-minute, backroom deals, and votes on thousand page bills that few – if any have read.

This is not a new trend, but has occurred consistently since the 74 Budget Act was made into law. Over the past 40 years, there have been 176 Continuing Resolutions because Congress failed to complete the budget and appropriations process.  In this time, all 12 appropriations bills have been completed just four times. Within the last 20 years, all 12 bills have been completed just once. Congress has even failed to pass a budget resolution – itself often a symbolic act  8 times in the past 15 years. With these dismal numbers, it is unsurprising that Congress is so unpopular. Clearly, major change is needed.

One criticism of the Price plan concludes that it is a way to “shield unpopular choices from voters.” In reality, the opposite is true.  Demonizing any attempt to reform the budget system by pushing deceptive lies only makes it harder for lawmakers to fix our unsustainable and growing spending problem. The longer this dysfunctional system remains the norm, the longer lawmakers will be able to shield their unpopular choices from voters.


Like-kind Exchanges Should Be Preserved as Part of Any Tax Reform Plan

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Posted by Alexander Hendrie on Tuesday, December 6th, 2016, 2:00 PM PERMALINK

Next year, tax reform will be on the agenda and Congress must consider whether to repeal, preserve, or expand many sections of the tax code. One provision that should be preserved or expanded is section 1031 “like-kind exchanges.” This section of the code compliments the goals of tax reform by allowing taxpayers important investment flexibility that encourages stronger economic growth.

Like-kind exchanges allow taxpayers to defer paying taxes on certain types of assets when they use those earnings to invest in another, similar asset. This can be done again and again, provided the transaction involves a similar type of property. It has existed in the tax code for more than 100 years and is used on assets such as real estate, machinery for farming and mining, and equipment such as trucks and cars. Because an investor doesn’t have to pay tax until they cash out, section 1031 eliminates a potential barrier to investment, which in turn promotes the more efficient allocation of capital resources.

Rather than face repeal, like-kind exchanges should serve as a model for the taxation of all investments and should be retained in any overhaul of the tax code as a complementary provision to full business expensing. The provision has no place being categorized as a “pay-for” to buy lower rates and repeal would move the code toward higher taxes on investment, which in turn hurts economic growth and reduces income.

Like-Kind Exchanges Compliment the Goals of Pro-Growth Tax Reform: The tax code should encourage the efficient allocation of resources by taxing at the point of consumption. Under this system, investment would be treated neutrally (and efficiently) so that decisions would be made based on economic benefit. When measured against this goal, section 1031 is a necessary and complimentary part of a pro-growth tax system.

The House GOP “Better Way” tax reform blueprint takes many steps in moving the code toward this goal. For instance, the blueprint replaces the convoluted system of depreciation with immediate, full business expensing of all tangible assets (such as equipment) and intangible assets (such as intellectual property), but not land. This allows business owners to make decisions based on the merits of the transaction, not because of government induced tax barriers. In turn, this means a more efficient allocation of resources.

A move toward full expensing of assets will streamline business activity by allowing the efficient purchase of new assets and Section 1031 should be considered complimentary to this goal. 1031 allows less productive assets to be replaced with more productive assets, and therefore eliminates any lock-in effect that would otherwise discourage business activity. This is especially important for land assets that are excluded by the blueprint, which in many cases represents a significant portion of many properties. Because of the exclusion of land, repeal of like-kind exchanges – even with full expensing – may have the effect of impeding otherwise productive transactions.

Repealing Section 1031 is Economically Destructive: One key part of pro-growth tax reform is repealing preferential, distortive business credits and deductions – or “loopholes” as the left refers to them – in exchange for lowering marginal rates on corporations and small businesses as part of a net tax cut. The rationale is that it broadens the base of taxpayers, allows lower rates across the board than would otherwise be possible, and ensures the most efficient allocation of capital possible through the neutral treatment of businesses.

While this principle should be part of any tax plan, like-kind exchanges have no place in this conversation. 1031 grants important flexibility for a taxpayer to make the most economically efficient investment decisions in a way that benefits – not hinder economic growth and efficiency. If Section 1031 were to be repealed it would create a lock in effect that would discourage certain types of otherwise productive transactions. Conversely, this would result in less productive deployment of capital in the economy which would hurt economic growth and capital while raising little revenue.  

Because of this lock-in effect, repeal could cost the U.S. economy as much as $13.1 billion in lost GDP year after year, according to a study conducted by Ernst and Young. This GDP loss would also result in investment falling by $7 billion every year and would reduce income by an estimated $1.4 billion.

Like-Kind Exchanges should be a Model for All Capital Gains:  Ideally, all income derived as a “capital gain” should be exempt from taxation.  This tax hits income that has already been subjected to income taxes and has been reinvested to help create jobs, grow wages, and increase economic growth. Naturally, this double taxation impedes the ability to invest and foster stronger economic growth.

Capital gains taxes should be reduced – or better yet, repealed – and preserving and expanding section 1031 should be part of this effort.

Under like-kind exchange rules, you only have a gain when you decide to cash out.  The gain is the difference between the final sale amount and the original purchase, and is embedded over the years in the business. In effect, it becomes due when the business activity effectively ends.

There’s no reason this cannot work for other capital gains. If you buy a stock for $100 and sell it for $150, you should be able to plow that $150 into new stock purchases without having to pay tax along the way. 

This would also have the added effects of promoting tax simplicity and economic efficiency. Investors would no longer have to report each and every stock and mutual fund transaction on their taxes every year, simplifying tax filing for millions of Americans. It also would make all capital markets--for everything--more efficient.

Every time the government takes money out of the pool of capital investment, capital grows more slowly and we're all poorer than we otherwise would be. The key to wealth creation is to leave capital--untouched by government--free to grow for as long as possible.

Some have proposed repealing or limiting section 1031 as a way to make incremental progress towards taxing all capital gains as ordinary income. Instead of moving in this direction, we should be expanding the scope of like-kind exchanges as part of ending double taxation, promoting tax simplicity, and encouraging investment.

 

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Pro-Growth Reform Should Rollback or Remove Distortive Excise Taxes

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Posted by Alexander Hendrie on Thursday, December 1st, 2016, 9:00 AM PERMALINK

A major goal of tax reform is eliminating or minimizing the extent to which the code picks winners and losers, with the end goal of a code that treats all economic decisions neutrally. This means removing any distortions in the tax code so that capital can form in the most productive way possible, resulting in more jobs, increased wages, and higher growth than may otherwise occur.

One broad way of achieving this is ensuring that businesses are taxed as equitably as possible by eliminating business credits in exchange for lowering rates within an across the board tax cut.

A different, more targeted way to achieve this goal is through the repeal of certain taxes, such as excise taxes. When it comes to alcohol excise taxes, this problem is especially noteworthy as the code currently taxes beer, wine, and spirits at different, arbitrary rates:

  • Beer is subject to an $18 excise tax per barrel, with a reduced rate for the first 60,000 barrels produced by smaller brewers.
  • Wine is subject to excise taxes between $1.07 and $3.40 per gallon, with a phased out credit for small wineries.
  • Spirits are taxed at $13.50 per proof gallon, but with no reduced rate for smaller distillers.
     

This makes no sense, and is exactly the type of distortion that tax reform should aim to fix.

One possible path forward to undoing this inconsistent taxation is by passing the Craft Beverage Modernization and Tax Reform Act (S. 1562/H.R 2903), legislation sponsored by Senator Ron Wyden (D-Ore.) and Senator Roy Blunt (R-MO), and Congressman Erik Paulsen (R-MN) and Congressman Ron Kind (D-Wis.). The legislation is supported by a majority of both chambers -- 287 Congressmen and 52 Senators from both parties -- so there is clear consensus on the ideal path forward.

This legislation moves closer toward the goal of tax equity by ensuring the code treats beer, wine, and spirits in similar ways. In addition, it also equalizes the tax treatment of producers large and small.

By lowering rates, the Craft Beverage Modernization and Tax Reform Act achieves another key goal of tax reform – encouraging growth, jobs, and higher wages, through a more efficient system. It’s a basic principle that if you want more of something, you tax it less. Less income being diverted to federal and state governments means more resources left that can be invested by businesses in economically productive activity.

Excise taxes by their nature are counterproductive, because they have two competing goals. Lawmakers often justify these taxes as a way to clamp down on negative behavior, but the more successful they are at this goal, the less revenue they produce. In addition, they pick winners and losers by taxing a selective, narrow base, which distorts production and economic choices.

Tax reform that lowers rates and removes distortions is decades overdue. Removing credits, deductions, and discriminatory taxes – like alcohol excise taxes – must be a key component of pro-growth reform that increases wages, creates more jobs, and boosts economic growth.

 

 

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ATR Statement on H.R. 34, the 21st Century Cures/Mental Health Reform Package

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Posted by Alexander Hendrie on Tuesday, November 29th, 2016, 1:47 PM PERMALINK

Congress will this week consider H.R. 34, “the 21st Century Cures Act.” This fiscally responsible legislation promotes medical innovation by streamlining the discovery, development, and delivery of medicines. It also reforms the nation’s failing mental health system to ensure millions of Americans receive the care they need. Members of Congress should have no hesitation supporting and voting “Yes” on this important legislation.

Fiscally Responsible: The 21st Century Cures package contains no tax increases, and all new spending is fully offset over the ten year window with corresponding spending cuts, as noted in an analysis by the Congressional Budget Office.

In all, H.R. 34 provides $6.3 billion in funding over the next ten years, including $4.8 billion to the NIH, $1 billion to combat opioid abuse, and $500 million to the FDA. Unlike the version of Cures passed last year, spending in the updated version is not mandatory, so Congress will retain necessary oversight over all spending.

More than half of the legislation’s spending is offset by rescinding funds from Obamacare’s unaccountable Prevention and Public Health Slush fund, a fund that has been used to push the Obama administration’s partisan agenda with non-existent congressional oversight. Other offsets include several changes to Medicare and Medicaid that will help promote the sustainability of these programs in the decades to come.

Promotes Medical Innovation: H.R. 34 devotes significant resources to streamlining the long process of medical innovation by reforming the discovery, development, and delivery of medicines and treatments.

Reforms include reducing regulatory red tape, breaking down barriers that restrict data sharing, speeding up clinical trials while increasing patient input, promoting new technologies, and expediting the review of potentially breakthrough devices.

While the resources needed to develop new cures are costly and time consuming, the potential savings to the broader healthcare system are significant. Updating the regulatory system governing the development of new medicines and treatments will ensure the U.S. remains a world leader in treatment, that the lives of millions will improve, and that costs will be minimized.

Reforms Failing Mental Health System: All too often, the U.S. mental health system fails to provide proper treatment to the millions that need it. The federal government spends roughly $130 billion on mental health each year, often with underwhelming and ineffective results. While there are 112 federal programs dedicated to addressing mental health, there is little, if any coordination. The Substance Abuse and Mental Health Services Administration (SAMSHA) has even been dubbed the “worse government agency”.

While there is need for change, the solution cannot be spending billions in a system is plagued by inefficiency and waste. Instead, H.R. 34 contains many important reforms that update the mental health system without spending any new money.

Specifically, the legislation reforms SAMSHA, creates more oversight and connectivity over the many programs and agencies involved in mental health and priorities evidence-based care that empowers caregivers, supports innovation, and advances early prevention programs.

In addition, the legislation creates more support for the mental health workforce, for on-campus mental health education, and for addressing substance use. 

There is clear support for reforming our mental health system in this direction. Similar legislation, “the Helping Families in Mental Health Crisis Act” (H.R. 2646), sponsored by Congressman Tim Murphy (R-Pa.) passed the House of Representatives by an overwhelming vote of 422-2 earlier this year. Lawmakers should have no hesitation again supporting these important reforms.

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Congress Must Repeal or Restrain Obamacare's CMMI

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Posted by Alexander Hendrie on Wednesday, November 16th, 2016, 10:00 AM PERMALINK

When it was passed into law six years ago, Obamacare created the Centers for Medicare and Medicaid Innovation (CMMI) and tasked the agency with conducting demonstrations over new health care delivery and payment models in Medicare, Medicaid, and the Children’s Health Insurance Program with the intent of reducing healthcare costs. 

While CMMI tests are supposed to increase the efficiency of healthcare programs, the agency has pushed tests with little evidence they will result in savings, while strong-arming providers into participating. At the same time, the Congressional Budget Office is utilizing unsuitable scorekeeping over CMMI tests, which has limited the ability of Congress to conduct routine oversight.

In a letter to lawmakers, a coalition of conservative groups, including ATR urged Congress to prioritize restraining or repealing this unaccountable agency next year. The letter can be found below or here.

Dear Member of Congress:

As policymakers wrap up business this year as well as prepare for a new Congress and administration, repealing and replacing Obamacare is at the top of the agenda. There are dozens of complex policy issues surrounding health care reform. One standout that urgently needs scrutiny is the Center for Medicare and Medicaid Innovation (CMMI.)

CMMI was created by Obamacare in order to facilitate demonstration projects for payments and services within those programs. Unfortunately, the outgoing Obama Administration chose to engage in executive overreach on several CMMI initiatives by making them involuntary, nationwide policy changes. Perhaps the most alarming example so far is the Medicare Part B demonstration project, which impacts cancer patients and doctors in 49 states. 

Another reason to repeal CMMI, or at least to construct guardrails that can curb abusive measures like the Part B Demo, is the way that the Congressional Budget Office has scored the agency's activities. CBO thinks that CMMI’s unelected bureaucrats will save tens of billions of dollars from Medicare and Medicaid, but if the people’s elected representatives want to set policy instead, it will "cost" taxpayer dollars. This is not only bad scoring, it's an inappropriate weakening of Congress' right to make entitlement policy. Any CMMI changes short of repeal should correct this grave scorekeeping error, before it further upsets the balance of power in the policymaking process.

Sincerely,

Grover Norquist
President, Americans for Tax Reform

Tom Schatz
President, Council for Citizens Against Government Waste

Pete Sepp
President, National Taxpayers Union

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FTC Contact Lens Rule Changes Protect Free Market Competition

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Posted by Alexander Hendrie on Wednesday, November 16th, 2016, 9:00 AM PERMALINK

After 14 months of review, the Federal Trade Commission (FTC) issued proposed changes to the contact lens rule that will protect a free and open market over the purchase of contact lenses. In addition, they preserve protections that allow consumers the freedom to purchase where they choose, free from government interference. 

These proposed changes build on the success of the 2003 Fairness to Contact Lens Consumers Act (FCLCA) and will ensure that the free market is allowed to thrive. Given the proven success of FCLCA, federal lawmakers should be sure not to reverse this working system based on misleading rhetoric.

It is a basic principle of free markets that consumers are free to make decisions without government control over prices and purchasing choices. Existing law works and should only be tweaked as the FTC review calls for, not blown up and replaced with a radically different system as legislation in Congress would do.

Proposed Changes Ensure Consumers and Free Commerce Remain Protected

Prior to passage of FCLCA, optometrists could make it more difficult for their patients to purchase from a third party. These concerns were far from hypothetical – there were many well documented cases of bad actors implicitly or directly blocking the free choice of consumers.

To be clear, there should be no restrictions on professionals selling contact lens, nor should there be any restriction on consumers safely purchasing from a third party.  

FCLCA fixed existing flaws in law by allowing consumers the right to “passive verification” over contact lens prescriptions, a change that meant patients would have access to a written prescription, so they could shop where they wanted.

The proposed FTC rule changes build on the success of FCLCA by streamlining prescription verification in a way that balances patient access and public safety in the most compliant friendly manner.

The rule calls for additional record keeping in the form of a “receipt of contact lens prescription” that enshrines the right of consumers to freely purchase from either their optometrist or a third party provider.

Consumers will also have increased flexibility to have their prescriptions verified through phone, fax, or online, a change that makes sense given the ease of communication today.

Congress Should Reject Misleadingly Named “Contact Lens Consumer Health Protection Act”

While the results of the FTC’s review moves federal law in the right direction, legislation in Congress would undo this based on vague and unproven “safety concerns.”

The Contact Lens Consumer Health Protection Act (S. 2777/H.R. 6157) would revert back to the system of “direct verification,” meaning that an optometrist must prescribe over the phone or in person. A coalition of ten conservative, free market groups, including ATR recently called on lawmakers to reject this protectionist legislation. 

While the proposed change may sound innocuous, it would again open the door to bad actors denying patients the freedom to purchase wherever they wish.

Supporters of the legislation claim that it targets deceptive sales of contact lenses and ensures safety for contact lens consumers. But as noted by the FTC’s review of federal law, there is no evidence this is the case. Congress has already considered the issues of contact lens health use and they were incorporated in FCLCA upon passage more than a decade ago.

In actuality, the currently proposed legislation squeezes consumers to make it difficult, even impossible to purchase lenses from any non-optometrist third party.

Congress should not move to constrain the free market and limit consumer choice, especially given the findings of the evidence based review conducted by the FTC.   

 

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Good Riddance to Obamacare’s Tax Hikes

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Posted by Alexander Hendrie, John Kartch on Monday, November 14th, 2016, 10:54 AM PERMALINK

When it was signed into law six years ago, Obamacare imposed more than $1 trillion in tax hikes on the American people over a ten year period. There are seven Obamacare tax increases that directly hit Americans making less than $250,000, a violation of President Obama’s “firm pledge” not to raise any form of tax on such households.

Obama broke his promise to the American people. Paul Ryan, Mitch McConnell, and Donald Trump can now abolish these taxes.  

The list of tax hikes is below -- the first seven directly hit Americans making less than $250,000:

Individual Mandate Non-Compliance Tax: Anyone not buying “qualifying” health insurance – as defined by President Obama’s Department of Health and Human Services -- must pay an income surtax to the IRS. In 2014, close to 7.5 million households paid this tax. Most make less than $250,000. The Obama administration uses the Orwellian phrase “shared responsibility payment” to describe this tax.   

Starting this year, the tax was a minimum of $695 for individuals, while families of four had to pay a minimum of $2,085.

 

Households w/ 1 Adult

 

Households w/ 2 Adults

Households w/ 2 Adults & 2 children

 

2.5% AGI/$695

 

2.5% AGI/$1390

2.5% AGI/$2085

A recent analysis by the Congressional Budget Office (CBO) found that repealing this tax would decrease spending by $311 billion over ten years.

Medicine Cabinet Tax on HSAs and FSAs: Since 2011 millions of Americans are no longer able to purchase over-the-counter medicines using pre-tax Flexible Spending Accounts or Health Savings Accounts dollars. Examples include cold, cough, and flu medicine, menstrual cramp relief medication, allergy medicines, and dozens of other common medicine cabinet health items. This tax costs FSA and HSA users $6.7 billion over ten years.

Flexible Spending Account Tax: The 30 - 35 million Americans who use a pre-tax Flexible Spending Account (FSA) at work to pay for their family’s basic medical needs face an Obamacare-imposed cap of $2,500. This tax will hit Americans $32 billion over the next ten years.

Before Obamacare, the accounts were unlimited under federal law, though employers were allowed to set a cap. Now, parents looking to sock away extra money to pay for braces find themselves quickly hitting this new cap, meaning they have to pony up some or all of the cost with after-tax dollars. Needless to say, this tax especially impacts middle class families.

There is one group of FSA owners for whom this new cap is particularly cruel and onerous: parents of special needs children.  Families with special needs children often use FSAs to pay for special needs education. Tuition rates at special needs schools can run thousands of dollars per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. This Obamacare tax increase limits the options available to these families.

Chronic Care Tax: This income tax increase directly targets middle class Americans with high medical bills. The tax hits 10 million households every year. Before Obamacare, Americans facing high medical expenses were allowed an income tax deduction to the extent that those expenses exceeded 7.5 percent of adjusted gross income (AGI). Obamacare now imposes a threshold of 10 percent of AGI. Therefore, Obamacare not only makes it more difficult to claim this deduction, it widens the net of taxable income. This income tax increase will cost Americans $40 billion over the next ten years.

According to the IRS, approximately 10 million families took advantage of this tax deduction each year before Obamacare. Almost all were middle class: The average taxpayer claiming this deduction earned just over $53,000 annually in 2010. ATR estimates that the average income tax increase for the average family claiming this tax benefit is about $200 - $400 per year.

HSA Withdrawal Tax Hike: This provision increases the tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Ten Percent Excise Tax on Indoor Tanning: The Obamacare 10 percent tanning tax has wiped out an estimated 10,000 tanning salons, many owned by women. This $800 million Obamacare tax increase was the first to go into effect (July 2010). This petty, burdensome, nanny-state tax affects both the business owner and the end user. Industry estimates show that 30 million Americans visit an indoor tanning facility in a given year, and over 50 percent of salon owners are women. There is no exception granted for those making less than $250,000 meaning it is yet another tax that violates Obama’s “firm pledge” not to raise “any form” of tax on Americans making less than this amount.

“Cadillac Tax” -- Excise Tax on Comprehensive Health Insurance Plans: In 2020, a new 40 percent excise tax on employer provided health insurance plans is scheduled to kick in, on plans exceeding $10,200 for individuals and $27,500 for families. According to research by the Kaiser Family Foundation, the Cadillac tax will hit 26 percent of employer provided plans by 2020 and 42 percent of employer provided plans by 2028. Over time, this will decrease care and increase costs for millions of American families across the country. 

Health Insurance Tax: In addition to mandating the purchase of health insurance through the individual mandate tax, Obamacare directly increases the cost of insurance through the health insurance tax. The tax is projected to cost taxpayers – including those in the middle class – $130 billion over the next decade. 

The total revenue this tax collects is set annually by Treasury and is then divided amongst insurers relative to the premiums they collect each year. While it is directly levied on the industry, the costs of the health insurance tax are inevitably passed on to small businesses that provide healthcare to their employees, middle class families through higher premiums, seniors who purchase Medicare advantage coverage, and the poor who rely on Medicaid managed care.

According to the American Action Forum, the Obamacare health insurance tax will increase premiums by up to $5,000 over a decade and will directly impact 1.7 million small businesses, 11 million households that purchase through the individual insurance market and 23 million households covered through their jobs. The tax is also economically destructive – the National Federation for Independent Businesses estimates the tax could cost up to 286,000 in new jobs and cost small businesses $33 billion in lost sales by 2023.

Employer Mandate Tax: This provision forces employers to pay a $2,000 tax per full time employee if they do not offer “qualifying” – as defined by the government -- health coverage, and at least one employee qualifies for a health tax credit. According to the Congressional Budget Office, the Employer Mandate Tax raises taxes on businesses by $166.9 billion over the ten years.

Surtax on Investment Income: Obamacare created a new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 for singles). This created a new top capital gains tax rate of 23.8% and increased taxes by $222.8 billion over ten years.

The capital gains tax hits income that has already been subjected to individual income taxes and is then reinvested in assets that spur new jobs, higher wages, and increased economic growth. Much of the “gains” associated with the capital gains tax is due to inflation and studies have shown that even supposedly modest increases in the capital gains tax have strong negative economic effects.

Payroll Tax Hike: Obamacare imposes an additional 0.9 percent payroll tax on individuals making $200,000 or couples making more than $250,000. This tax increase costs Americans $123 billion over ten years.

Tax on Medical Device Manufacturers: This law imposes a new 2.3% excise tax on all sales of medical devices. The tax applies even if the company has no profits in a given year. The tax was recently paused for tax years 2016 and 2017. It will cost Americans $20 billion by 2025.

Tax on Prescription Medicine: Obamacare imposed a tax on the producers of prescription medicine based on relative share of sales. This is a $29.6 billion tax hike over the next ten years.

Codification of the “economic substance doctrine”: This provision allows the IRS to disallow completely legal tax deductions and other legal tax-minimizing plans just because the IRS deems that the action lacks “substance” and is merely intended to reduce taxes owed. This costs taxpayers $5.8 billion over ten years.

Elimination of Deduction for Retiree Prescription Drug Coverage: The elimination of this deduction is a $1.8 billion tax hike over ten years.

$500,000 Annual Executive Compensation Limit for Health Insurance Executives: This deduction limitation is a $600 million tax hike over ten years.

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Lawmakers Should Oppose the CREATES Act

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Posted by Alexander Hendrie on Friday, November 11th, 2016, 9:00 AM PERMALINK

Before the end of the year, Congress is expected to consider S. 3056, the “Creating and Restoring Equal Access to Equivalent Samples Act” (CREATES Act) as a pay-for in H.R.6, the 21st Century Cures Act. While the intent of the CREATES Act is to streamline the system of medical innovation, it would ultimately cause more problems than it would solve. The legislation would cause severe damage to a regulatory system that ensures the safe development of life-saving and life-preserving medicines. It should be opposed by all members of Congress.

The CREATES Act modifies an FDA regulatory process known as Risk Evaluation and Mitigation Strategies (REMS). This process applies to a small set of potentially dangerous drugs and is carefully balanced to promote safety, innovation, and access. This flawed legislation would upend this system in a reckless way that undermines these principles.

If passed into law, the CREATES Act would endanger patient and researcher safety, undermine intellectual property rights protections, open the door to unjustified litigation, and suppress innovation. 

Undermines Intellectual Property Rights: Patent exclusivity has been carefully enshrined in law to ensure that creativity, innovation, and medical growth are not undermined. It is also not unlimited or unreasonable in length because doing so would allow the creation of a monopoly and limit access to medicines at reasonable prices.

The CREATES Act creates a new litigation system with the aim of ensuring bad actors do not abuse the regulatory system to extend patent protection. However, it does so in a backwards way that gives generics the power to force innovators to hand over their IP at threat of litigation.

While supporters of the legislation argue that billions could be saved by modifying the regulatory process, this would come at the cost of suppress innovation, resulting in the slowed development of innovative new medicines and higher long-term costs.

Upends a Carefully Balanced, Working Regulatory System: REMS is a special regulatory process that affects a small set of about 40 highly advanced, yet potential dangerous drugs. This process is necessary because of the volatile nature of these medicines, and ensures they are efficiently developed and administered in a way that carefully balances property rights, safety, and access.

The CREATES Act upends this system by allowing generics to bypass FDA procedures that exist to ensure REMS medicines are safely developed. Under the proposal, a generic manufacturer is not required to include adequate safeguards for patients and researchers as a condition of authorization, and FDA is limited in its ability to deny or modify an authorization request.

Opens Door to Unjustified Litigation: If enacted into law, the CREATES Act would open the door to bad actors in the industry launching petty, unjustified litigation. This would be a handout to monied trial lawyers at the expense of innovators, consumers, and the broader healthcare system.

This legislation creates a new litigation system that leaves allows competitors seeking samples from an innovator the ability to launch litigation just 30 days after negotiation has begun --  essentially forcing innovators to hand over their IP or go to court. At its most extreme, the legislation’s lack of protections may even leave innovators responsible for actions taken by a reckless generic competitor.

Not the Solution to Lower Drug Prices: Supporters of the legislation, like Senator Patrick Leahy (D-Vt.) claim that the CREATES Act is a solution to high price of medicines. If anything this proposal would do the opposite – increase the price of medicines by creating a more burdensome, litigious regulatory system.

Costs associated with medical development are already significant. On average it costs $2.6 billion and more than a decade of research time for each new medicine that hits the market. By opening the door to more litigation in a way that shifts the burden onto innovators, the CREATES Act will undoubtedly increase these costs. 

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The Government Would be A Lousy Negotiator Over Drug Prices

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Posted by Alexander Hendrie on Monday, November 7th, 2016, 8:00 AM PERMALINK

The price of life-saving and life-preserving prescription medicines has been subject to intense scrutiny recently. Some have even used this negative attention as an excuse to call for the government to forcefully lower the price of drugs by giving bureaucrats greater authority to set market prices. However, these proposals demonstrate a lack of understanding of the issue.

The fact is, government “negotiation” over drug prices would not deliver the benefits that supporters claim. While they may reduce the upfront cost of medicines, it would likely increase long-term costs and would replace an existing system that already reduces costs with one that hampers innovation and reduces choice. The simple fact is, the government would be a terrible negotiator over the price of medicines.

Prices Are Already Negotiated Down: When it comes to the price of prescription drugs, it is not a choice between government negotiation and nothing. The free market already works to reduce costs, and by giving negotiators an incentive to provide the lowest prices possible, while balancing access to care.

Under this system, pharmacy Benefit Managers (PBMs) exist as the middleman between pharmacies, consumers, and manufacturers. They negotiate with these stakeholders to provide medicines at a lower price, a practice that will save up to 30 percent, or $654 billion over the next ten years, including $257 billion for Medicare part B.

Granting the government new power, will replace, rather than add to these savings. As noted in a study by PwC, PBMs act as a private sector alternative to price controls by putting downward pressure on low healthcare prices and therefore, they achieve what the government cannot.

While much was made of the recent announcement that the price of the EpiPen would increase from $150 to $600 for a pack of two, this price is negotiated down by close to 50 percent even though the product has no competition in the market.

These savings occurs across the prescription drug market. In total, the average out-of-pocket cost for employer provided prescription drugs decreased from $167 in 2009 to just $144 in 2014.

When the Government Negotiates, It Does So Poorly: The concern that government negotiation would back fire isn’t hypothetical – there are already case studies that prove this point. On one hand, prescription drugs administered through the Veterans Affairs agency are set by the government. On the other, Medicare Part D prescription drug coverage utilizes free market competition to put downward pressure on prices and maximize access. The performances of each program are stark.

Despite (or because of) not relying on government negotiation over prices, Medicare Part D works efficiently as it can instead focus on promoting competition amongst different providers. Different plans can compete based on the goal of maximizing access and minimizing coverage.

As this allows individuals to better select a plan that meets their needs, there is a 90 percent satisfaction rate and the program spends 45 percent less than initial projections, while monthly premiums are half of the projected amount. Even as spending remains low, the program covers a wide range of prescription medicines.

In contrast, VA address prescription drug coverage with a “one-size fits all” government run approach. This has led to VA covering as little as 40 percent of commonly used medicines, forcing close to one in four enrollees to purchase supplemental care.

While the VA “negotiates” prices, it inevitably must say no if the price it deems the price too high. As a result, it is very selective about what it covers and veterans are frequently locked out of accessing newer life-saving medicines, resulting in worse health outcomes, and higher long-term costs to the system. 

It’s the Job of the Free Market, not Government to Set Prices: While forcefully reducing the costs of medicine may succeed in reducing the upfront costs of drugs, over the long term it is an incredibly destructive policy. By forcing lower prices, the government creates a disincentive to innovate because there are less profits available to finance the next generation of life-saving and life-improving prescription medicines. In turn, this results in higher long-term healthcare costs because illnesses need to be treated in a reactive, not proactive way.

Already, development is a timely and expensive process. It costs an average of $2.6 billion and more than a decade of research time for each new medicine that hits the market. Only ten percent of drugs that begin preclinical testing ever make it to market, so prices are in part set by these extensive development costs.

While drug costs may seem high in isolation, it is only half the story as they also led to substantial savings over the long term, as noted by a recent study released by Frank R. Lichtenberg of the Montreal Economic Institute. Lichtenberg estimated that current savings to the healthcare system totaled almost a billion dollars more than overall spending on new medicines today, close to three decades since the period of medical innovation analyzed. 

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